The Nigeria Labour Congress (NLC), Nigeria Employers’ Consultative Association (NECA) and some financial experts have reacted to the Value Added Tax (VAT) increase saying it will have a negative impact of the purchasing power of Nigerians.
It would be recalled that the minister of finance, budget and national planning, Mrs. Zainab Ahmed, said on Wednesday, September 11 that the federal executive council had approved a proposed increase of VAT from five per cent to 7.2 two per cent.
The minister, however, stated that the VAT Act would have to be amended by the national assembly first before the increase comes into effect.
But reacting to the proposed increase, the general secretary of NLC, Mr. Emmanuel Ugboaja described it as “insensitive” and advised the federal government to widen the tax net and get people to pay tax instead of overtaxing those who are already in the tax net.
“We reject the increase as it clearly seeks to erode whatever purchasing power the minimum wage may bring. We see it as a move not well thought through with the welfare of Nigeria wage earners in mind.
“Its impact on Nigeria manufacturers and job creation and retention will be nightmarish. It is clearly insensitive to the plight of the ordinary Nigerian. What the government needs to do is to widen the tax net and get people to pay tax and not to overtax those that are in the net as of now,” he said.
Similarly, NECA said the move would lead to increase in the prices of goods and services. ,
The director general of NECA, Mr. Timothy Olawale explained that since the purchasing power of the citizens would be reduced, sale of goods and services will reduce and inventories for business will be high and could lead to the closure of businesses that ought to be supported by the government in reducing the alarming unemployment rate.
“The benefits of the recently signed national minimum wage of N30,000 would be neutralized by the proposed increase in the VAT, further reduce the purchasing power of the citizens, leading to increase in prices of goods and services, resulting in upward movement of the inflation rate, and further contraction of the economy,” he added.
He said if the government was bent on increasing VAT, it should be restricted to luxury goods.
Like the NLC, the NECA chief urged the government to double its efforts at expanding the tax net, reduce income gap and improve the economy through more friendly fiscal policies and promote the ease of doing business in Nigeria.
A financial expert, Dr Suleyman Ndanusa, said the any increase in VAT would affect demand for goods and services.
Ndanusa who was former director general of the Securities and Exchange Commission (SEC), told NAN that companies would suffer if people do not demand for goods and services because of VAT increment.
“If people do not demand for goods because of more tax burden, it will affect the companies that produce them.
“And if the companies that produce them are not making money, it will obviously affect their profitability and income,” he said.
He said the timing for the VAT increment was wrong considering the challenges in the economy.
“The timing is quite wrong, at this point in time our economy needs to be helped by policies that would ginger more consumption and more disposable income for masses and the people.
“The paradigm for me has to change, are we increasing tax just for purpose of revenue or managing our fiscal policy taxation for growth?
“The paradigm has shifted from revenue driven taxation to growth driven taxation.
“Nigeria should be thinking on what to do to create the genetic energy for our economy at this point in time, where we are growing at 2.5 per cent,” he added.
Ndanusa advised the government not to increase tax for the purpose of revenue.
He explained that government needed to introduce incentives, reduce interest rates and pump up consumption to help the economy to grow instead of increasing taxes.
“The approach must be holistic, obviously at time like this when there is a seeming recession or coming out of recession. “Government needs to pump up consumption; when you begin to tax expenditure just for the purpose of revenue, it will further dampen demand and it will affect businesses.
“What we need to do now that everybody is down, the masses are complaining, the workers are complaining that their disposable income have been injured and the economy is very slow is to mop in incentives,” he added.
A chartered stockbroker and chief executive officer of Sofunix Investment and Communications, Mr. Sola Oni, described the VAT increase as a “bad omen.”
He said the move would obviously increase transaction cost and make Nigerian market more uncompetitive.
“High transaction cost is at variance with the global best practices.
“The policy is overkill at a period when investors’ confidence in the market is still fragile.
“It is another way of deploying unpopular government’s policy to stifle our capital market. It is not too late to reverse the acerbic policy,” he said.
Similarly, the chief operating officer of Invest Data Limited, Mr. Ambrose said VAT increase at the current stage and state of the economy would further hamper consumption due to low purchasing power.
“Yes, it is true that government needs money to finance the budget, but timing is the issue here because the economy is still struggling,” he said.
Also reacting, the People’s Democratic Party advised the federal government to reverse its decision.
The party in a statement issued by its national publicity secretary, Mr. Kola Ologbondiyan in Abuja said Nigerians could not bear such a burden under the prevailing economic situation.
The PDP insisted that the decision to increase VAT on already impoverished citizens “is in bad faith and cannot be justified under any guise.”
The party said such increment would put more pressure on families and businesses as it would result in an increase in costs of goods and services that have a direct bearing on the welfare of the people.
Instead of foisting more tax burden on Nigerians, the party advised the federal government to recover the over N14 trillion oil money alleged to have been stolen in the last four years.
“The PDP, therefore, urges the national assembly to protect Nigerians and save the nation from collapse by rejecting this injurious decision by the Buhari presidency,” said Ologbondiyan.
